The crisis in Australian Capitalism: an alternative view - The National Times, October 14, 1978

In his series The Crisis in Australian Capitalism, Peter Robinson suggested that one solution to our present problems could be to integrate the growth of the Australian manufacturing industry more closely with the burgeoning economic development of East Asia. In this alternative viewpoint, GREGORY CLARK in Tokyo claims that experience in Japan shows that there are other, more practical approaches.

JAPAN'S efforts to move out of reces- sion could provide a few pointers for Australia. Contrary to popular opinion, much of Japan's economy is quite backward. Its strength lies entirely in its highly efficient manufacturing sector, which is less than 40 per cent of total GNP. The balance is made up of a high-cost, heavily protected rural (primary) sector and a service (tertiary) sector grossly wasteful of labour. The productivity gap between Japan's most ef- ficient manufacturing and least efficient service industry groups is in the order of more than 80 times, as compared with 15 for the United States.

As a result, a kilogram of quality beef passing through Japan's woeful distribution system retails for the price of three electronic calculators embodying the world's latest technology. A dinner at an average restaurant with friends can easily cost as much as a good colour television set. A round of golf for four costs more than a good second-hand car.

For a long time, the Japanese lived quite happily with this. Agriculture and the service industries provided a useful means of keeping surplus labour occupied while new manufacturing jobs were being created. The manufacturers provided enough exports and growth to keep the economy moving along merrily at a growth rate of more than 10 per cent a year.

In effect, the efficient sectors of the economy were strong enough to prop up the inefficient, even though the latter added up to more than half the total GNP. Japan's problem today is that with saturated domestic markets, manufacturers have to sell abroad. But if they sell abroad, they automatically cut their own throats by forcing the yen's value even higher. So, growth now has to come from the inefficient sectors. Obviously, nothing can be done to improve farming. But there are signs of some improvement in the service sector. Expanding supermarkets and fast-food chains are the main growth centres in the current, mild economic recovery.

Even so, a debate is raging between those who see service industries as an economic saviour and the planners in the Ministry of International Trade and Industry (MIII), who still see manu- facturing as the mainstay of the economy and the service industries as a pool for the unemployed. It remains Government policy to protect in- efficient small retailers by preventing "undue" ex- pansion of supermarkets and department stores. Little is done to economise on labour in the deficit- ridden National Railways.

But the Economic Planning Agency believes the time has come to do something about service industries. In its recent white paper, it described Japan's economy as resembling the Tokyo sky- line - an ocean of tawdry two-storey buildings broken by a few gleaming modern skyscrapers. The point is not who is right or wrong in the cur- rent debate (though I claim some of the credit for starting the debate with some articles published in Japan more than a year ago). Rather, it is that Japan, which can now claim one of the highest per-capita GNPs in the world (some $2,000 a head higher than Australia's),

can still see some merit in leaving much of its economy as an under-developed haven for the potentially unemployable. This has important implications for the cUrrent debate on the future of the Australian economy. To date, this debate has assumed that the Australian manufacturing sector must shape up, or else. Various schemes have been proposed, but none seems very realistic at this distance. For example, it is too late to turn Australia into a Sweden or Switzerland by carving out small, highly efficient manufacturing niches.

The manufacturing revolution is sweeping Asia too quickly, as even the Swedes and the Swiss will discover soon. The other main proposal to supply South-East Asia with technology in exchange for joint manufacturing agreements - seems about as plausible as the old idea that defence industries could save Australia.

The South-East Asians have already made it clear that they can get all the technology they want from Japan, the United States and Western Europe, and they will get it on their own terms. The chances of their suddenly embracing Australia and offering to site some of their manu- facturing there out of gratitude seems about as likely as Japan's going back to raising silkworms. But why worry about trying to rescue Australian manufacturing industry at all? Why not follow the Japanese example and simply leave it as a tariff-protected pool for surplus labour, to be drawn on as needed in the future?

If the Japanese can prop up some 60 per cent of their economy with an efficient manufacturing sector, it is quite reasonable for Australia to hope to prop up an inefficient manufacturing sector, provided the rest of its economy is operating ef- ficiently. The problem is to make sure the rest of the economy - the tertiary and primary sectors - can bear the load.

By comparison with Japan, Australia's service industries are quite efficient and progressing well. But they do not provide exports. The main burden will have to fall on Australia's efficient rural and mining sectors. The problem here, of course, is finding over- seas markets. Unlike in manufacturing, they are not produced by a few advertisements and sales campaigns. If they are to be found on a scale large enough to sustain a whole economy, they require a very skilful mixture of business initiative and government policy.

So far, the latter, in particular, has been sadly lacking. Indeed, by exaggerated self-delusions as to its resources' importance, Australia seems to have gone out of its way to alienate buyers and lose markets. When the Japanese were wondering whether they should be buying iron ore from distant Brazil or coal from Siberia, the last Labor Government embarked on its get-tough resources diplomacy. The Japanese quickly decided they needed that Brazilian ore and Siberian coal. When the Japanese were making their last round of big uranium contracts, Australia decided it could dictate uranium policy to the world by stopping exports. The South Africans got the contracts.

The delay on Northwest Shelf gas development has seen at least three major Japanese gas contracts, together with development finance, go to Indonesia, the Middle East and North Borneo. A negative attitude to foreign investment for pocessing in Australia saw the Japanese go elsewhere.

The future now lies with other markets - China, Korea, South-East Asia, the Middle East perhaps. But even here we are going to be dogged by the mistakes of the past.

True, there is little point today in worrying too much about the Japanese market for minerals, that, is. Foodstuffs are only beginning. Japan's raw materials processing industries' have passed their peak. They are too locked in to other suppliers now to start thinking about Australia, no matter how generous and obliging we become. One of the legacies of the "resources diplomacy" era was a Japanese decision to locate a sintering plant for processing iron ore in the south of the Philippines, rather than in Australia.

Over the years, it has flourished to the point that the Japanese are now thinking of building an iron and steel industry beside it. As well, they are using it to sinter iron ore from Brazil as well as Australia. A small item in the Japanese press recently shows just how dearly that sinter plant will cost us. Japan, as is now well known, is heavily com- mitted to help China develop steel and other in- dustries.

In an ideal, or even an average, world it would make a great deal of sense for Australia and Japan to co-operate in China, with Australia providing needed raw materials and Japan providing the plant and technology. After all, Japan now has a great deal of experience in processing those materials. Certainly, it makes more sense than the idea of joint Australia-Southeast Asian manufacturing.

According to the press here, however, the Japanese are not encouraging the Chinese to use Australian iron ore. They want the Chinese to use Brazilian ore sintered at that Philippines plant. The ore will come from a mine in which the Japanese invested heavily after their snubs from the Labor Government. They have a vested interest in seeing the mine and the sinter plant operate at full capacity, and, since their own domestic market is depressed, China is the obvious outlet. This is not to dismiss any effort to restore Australian manufacturing. It is simply a matter of priorities. In theory, at least, it should be easier to ask our politicians and bureaucrats to stop making mistakes in their minerals policy.